The Prudential Authority (PA) has published a revised draft of Prudential Standard FSI 6 – Liquidity risk management for insurers (Draft FSI 6) for comment by 27 November 2026, with no commencement date yet.1 The core of the May 2024 draft remains, but the asset rules, stress testing and sign-off requirements have changed.
The PA’s statement of need says the implementation cost for the industry ‘is yet to be determined.’
My initial reading of the Draft FSI 6 suggests that bank paper, such as negotiable certificates of deposit and most money market funds, would fall outside Level 1. A key question for me remains whether one monthly regime for every insurer is a proportionate response to risks identified in a particular set of activities.
What has not changed
All insurers other than microinsurers, Lloyd’s and branches of foreign reinsurers remain in scope. They must hold a 30-day insurance liquidity ratio (ILR) of at least 100%, with inflows capped at 75% of outflows and at least 60% of high-quality liquid assets (HQLA) in Level 1. Reporting is a monthly return with business-as-usual and stressed cash flows in seven buckets, from next day to 12 months.2
What is new
Figure 1: Summary of changes in Draft FSI 6
| Area | October 2026 draft |
|---|---|
| Unit-linked business | Cash flows where the policyholder bears the investment risk are excluded from the ILR. Residual liquidity risk stays in scope. Insurers may apply to the PA to hold less than 60% of HQLA in Level 1. |
| Asset classes and haircuts | These areas are now set by notice rather than guidance. The 30-day haircuts are unchanged (Level 2a 15% and Level 2b 50%), but eligible corporate debt and equities exclude financial institutions, and money market funds are Level 1 only if invested solely in Level 1 assets. No single issuer above 20% of HQLA is permitted, except South African government bonds. |
| Stress testing | Acute stress must be tested up to three months and protracted stress, up to 12 months. Each result needs a 95% confidence interval or a sensitivity range. Reverse stress tests to depletion must be conducted. The PA may prescribe a standardised scenario. |
| Sign-off | The external auditor must now obtain evidence on HQLA composition and the ILR calculation. The head of actuarial function’s opinion on the ILR carries over from 2024. |
| Supervisory powers | The PA may impose a liquidity add-on: a higher ILR, more HQLA, or HQLA of a specified composition, currency or location. |
| Own Risk and Solvency Assessment (ORSA) | Specified liquidity content, including intragroup funding dependencies, replaces a separate annual liquidity report. |
My initial reading
The diagnosis and the remedy could be better aligned. The PA’s statement of need identifies gaps in liquidity-specific stress testing, contingency funding plans and the treatment of collateral and margin calls on derivatives and securities lending, as well as relays industry requests for requirements scaled to each insurer.3 Although Draft FSI 6, paragraph 4.1.2, requires proportionate risk management, the Draft reporting notice applies the same monthly granularity to everyone. The statement also records a low response to the impact study and indicates that the implementation cost ‘is yet to be determined.’
My initial reading suggests the asset rules appear to need cross-checking against actual holdings and the likely consequences tested for whether they are intended. Bank-issued instruments other than demand deposits do not appear in the list of qualifying assets, which would leave negotiable certificates of deposit and bank floating rate notes counting at best as ‘other assets’ at a 50% haircut. A money market fund is Level 1 only if it invests solely in Level 1 assets, and the few sample fact sheets reviewed suggest typical South African money market funds might not count as Level 1. The draft return also has an ‘other assets’ line in Level 2a at a 15% haircut, which the Draft haircut notice does not provide for; therefore, the treatment needs confirming.
The board still approves the stress scenarios, and the Draft FSI 6 treats a 30-day ILR below 100% under any of them as a breach. Each result now also needs a 95% confidence interval or a sensitivity range. The statistical meaning of a confidence interval around a hypothetical scenario is questionable, and ranges of either kind will be hard to compare across insurers.
Independent review of the ILR is probably useful, as in my experience the current unaudited measure has been observed to be prone to errors. However, the return is monthly and due 20 business days after month end. The auditor’s work appears tied to the audit already required under the Insurance Act, but the Draft FSI 6 does not say how often the head of actuarial function’s opinion is required. A presubmission review of every monthly return on that timetable would be very tight.4
1 South African Reserve Bank & Prudential Authority. (15 October 2026). Annexure A: Draft Prudential Standard FSI 6 – Liquidity risk management for insurers (Draft FSI 6); Annexure C: Draft statement of need (Draft statement of need); Annexure D: Determination notice for haircuts and asset types (Draft haircut notice); and Annexure E: Determination notice for reporting and liquidity risk return (Draft reporting notice). Retrieved 22 October 2026 from https://www.resbank.co.za/en/home/publications/publication-detail-pages/prudential-authority/pa-public-awareness/Communication/2026/prudential-standard-fsi-6-liquidity-risk-management-for-insurers.
2 The buckets are next day; 2 days to 7 days; 8 days to 1 month; 1 month to 2 months; 2 months to 3 months; 3 months to 6 months; and 6 months to 12 months. Draft FSI 6, ibid., paragraphs 2.1, 7.1, 7.4 and 8.8; Draft reporting notice, ibid., paragraph 3.2.
3 Draft statement of need, ibid., paragraphs 1.7, 3.4, 3.5, 5.4, 5.8.1 and 5.9.
4 Draft FSI 6, ibid., paragraphs 3.5 and 3.6; Draft reporting notice, ibid., paragraph 3.2.